Business Cycle Phases [Autosaved]

7/30/2019 Business Cycle Phases [Autosaved]

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BUSINESS CYCLE


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DEFINITION

The term business cycle or trade cycle refers to

economy-wide fluctuations in production or economic

activity over several months or years.

These fluctuations occur around a long-term growth

trend, and typically involve shifts over time between

periods of relatively rapid economic growth

(anexpansion or boom), and periods of relativestagnation or decline (a contraction or recession).


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CHARACTERSTICS

Cyclical fluctuations are wave like shifts

Fluctuations are recurring in nature

They are non-periodic or uneven. In other words thepeaks and channel do not occur at usual intervals.

Business cycles are not seasonal variations such as

upswings in retail trade during festive seasons. Upswings and downswings are collective in their effects.


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NEED OF UNDERSTANDING

B.C

B.C gives insights the economy and also the market

impact correctly.

B.C helps understanding Variations in investment

spending (explain : Investment spending is considered

the most volatile component of the aggregate or total

demand)

Variations in government spending are yet another

source of business fluctuations.


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It gives the breif idea about fluctuations in exports and

imports and to decision making accordingly.

Understanding b.c ensure that establishments with a

minimum of uncertainty and damage.

B.C strengths and encourages it to plan with greater

discretion

Helps to Attention to Customers

This can be anespecially important factor for businesses seeking to

emerge from an economic downturn.


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PHASES OF B.C

The Four Phases of Business Cycle are :-

Prosperity or boom phase

Recession phase

Depression phase

Recovery phase


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Business cycle phases


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PROSPERITY PHASE

When there is an expansion of output, income,

employment, prices and profits, there is also a rise in

the standard of living. This period is termed as

Prosperity phase.

Due to full employment of resources, the level of

production is Maximum and there is a rise

in GNP (Gross National Product). Due to a high level

ofeconomic activity, it causes a rise in prices and

profits. There is an upswing in the economic activity

and economy reaches its Peak. This is also called as

a Boom Period.


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THE FEATURES OF

PROSPERITY PHASE

High level of output and trade.

High level of effective demand.

High level of income and employment.

Rising interest rates.

Inflation.

Large expansion of bank credit.

Overall business optimism.

A high level of MEC (Marginal efficiency of capital)

and investment.


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RECESSION PHASE

A period of general economic decline; typically

defined as a decline in GDP for two or more

consecutive quarters. A recession is typically

accompanied by a drop in the stock market, an increase

in unemployment, and a decline in the housing market.

A recession is generally considered less severe than a

depression, and if a recession continues long enough it

is often then classified as a depression. There is no one

obvious cause of a recession, although overall blamegenerally falls on the federal leadership, often either

the President himself, the head of the Federal Reserve,

or the entire administration.


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GLOBAL RECESSION

There is no commonly accepted definition of a global

recession, although the International Monetary Fund

(IMF) regards periods when global growth is less than

3% to be global recessions. During what the IMF terms

the past three global recessions of the last three

decades, global per capita output growth was zero or

negative


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In economics, a recession is a business cyclecontraction, a general slowdown in economic activity.

Macroeconomic indicators such as GDP, employment,investment spending, capacity utilization, householdincome, business profits, and inflation fall, whilebankruptcies and the unemployment rate rise.

Recessions generally occur when there is a widespreaddrop in spending (an adverse demand shock). This maybe triggered by various events, such as a financialcrisis, an external trade shock, an adverse supply shockor the bursting of an economic bubble. Governments

usually respond to recessions by adopting expansionarymacroeconomic policies, such as increasing moneysupply, increasing government spending anddecreasing taxation.


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20082012 GLOBAL

RECESSION

The 20082012 global recession, sometimes referred to

as the late-2000s recession, the Great Recession is a

marked global economic decline that began in

December 2007 and took a particularly sharpdownward turn in September 2008. The global

recession affected the entire world economy, with

higher detriment in some countries than others. It is a

major global recession characterized by varioussystemic imbalances and was sparked by the outbreak

of the Financial crisis of 20072008.


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A global recession has resulted in a sharp drop in

international trade, rising unemployment and slumping

commodity prices. In December 2008, the NationalBureau of Economic Research (NBER) declared that

the United States had been in recession since

December 2007. Several economists predicted that

recovery might not appear until 2011 and that therecession would be the worst since the Great

Depression of the 1930s. The conditions leading up to

the crisis, characterized by an exorbitant rise in asset

prices and associated boom in economic demand, are

considered a result of the extended period of easily

available credit and inadequate regulation and

oversight


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CAUSES OF THE 20082012

GLOBAL RECESSION

Oil prices

Emigration

Monetary expansion Overproduction


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DEPRESSION PHASE

When there is a continuous decrease of output, income,

employment, prices and profits, there is a fall in the

standard of living and depression sets in.

In depression, there is under-utilization of resources

and fall in GNP (Gross National Product). The

aggregate economic activity is at the lowest, causing a

decline in prices and profits until the economy reachesits Trough (low point).


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THE FEATURES OF

DEPRESSION PHASE

Fall in volume of output and trade.

Fall in income and rise in unemployment.

Decline in consumption and demand. Fall in interest rate.

Deflation.

Contraction of bank credit.

Overall business pessimism.

Fall in MEC (Marginal efficiency of capital) and

investment.


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U.S UNEMPLOYMENT, FARM

PRICES & MANUFACTURING

OUT PUT


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RECOVERY PHASE

The turning point from depression to expansion is termed as

Recovery or Revival Phase.

During the period of revival or recovery, there are expansions

and rise in economic activities. When demand starts rising,

production increases and this causes an increase in investment.

There is a steady rise in output, income, employment, prices and

profits. The businessmen gain confidence and become optimistic

(Positive). The banks expand credit, business expansion takes

place and stock markets are activated.


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This phase is gradual. It starts when the price stops

falling.

This is said to start when the piled up stock is

exhausted.

the producers start planning for production.

This generates employment and income, which again

leads to demand for consumer goods.

This leads to correction of price.


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The profit starts replacing looses and recovery gathers

momentum.

Rising price encourages companies towards new

investment and projects.

This phase of recovery takes the economy to the phase of

prosperity. Thus, the cycle is again ready to repeat itself.


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SOURCES

http://www.investopedia.com/terms/b/businesscycle.asp#axzz2DQaYQBub

http://kalyan-city.blogspot.in/2011/06/4-phases-of-

business-cycle-in-economics.html

http://seekingalpha.com/article/824281-understanding-the-business-cycle-the-key-to-investor-success

http://www.tutorsonnet.com/homework_help/macro_eco

nomics/monetary_theory/business_cycles_assignment_h

elp_online_tutoring.htm

http://en.wikipedia.org/wiki/Business_cycle#Classificati

on_by_periods

http://en.wikipedia.org/wiki/Great_Depression
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Business Cycle Phases [Autosaved]